Will the housing benefit cap cause the 'social cleansing' of London?

Newham council in east London has approached a housing association in Stoke-on-Trent asking them to take 500 families who have apparently been priced out of their area by rising rents and the government's new cap on housing benefits. Is this the start of mass "social cleansing" in London?
Polly Curtis, with your help, finds out.

From this year a new cap on housing benefit has limited weekly payments to: £250 a week for a one bedroom property (including shared accommodation); £290 a week for a two bedroom property; £340 a week for a three bedroom property; and £400 a week for a four bedroom property

At the moment only people who are moving house are affected but withina year the cap will be in place across the country. Today there are reports that the London Borough of Newham has approached Stoke-on-Trent asking them to consider taking 500 families who have been priced out of the area. The BBC report this morning says:

A London council has been accused of starting "social cleansing" in the capital by asking a Stoke-on-Trent housing association to take on up to 500 families on housing benefit.

Newham Council says it can no longer afford to house tenants on its waiting list in private accommodation. The gap between market rents and the housing allowance is too big, it says.

But the association says such a move could mark the start of "thousands of needy people" being dumped elsewhere. Labour MPs say the decision to seek accommodation outside London is proof that the government's policy of capping housing benefit is already "beginning to unravel".

The story notes that Newham is facing a particular crunch because of rising rents ahead of the Olympics but Labour MP for Westminster North, Karen Buck, told the BBC it could be the tip of the iceberg.

Guardian

What is so worrying about the letter from Newham is not that this is Newham Council's fault but if a very poor borough in east London feels itself so desperate that it has to try and find accommodation as far away as Stoke, what is that telling us about demand?

We know from London Councils that 88,000 households have private rents above the new limits for housing benefit and in theory these families were meant to find new homes in places like Newham.

But the housing minister Grant Shapps has claimed that there are in fact more than a thousand properties currently advertised on the Rightmove lettings website within a five-mile radius of Newham and that Newham's intervention this morning is politically motivated. My colleague Peter Walker reports Shapps saying:

Martin Argles/Guardian

I'm not saying the BBC has been hoodwinked on this, but you have to factor in that it's local election time, and this is a Labour council.

I'm going to look at the evidence on rent in the capital to get a sense of the scale of the problem. Is it right that there are thousands of properties that Newham is ignoring?

I'm really keen to hear from anyone affected by the cap and their experience of what their council is doing about it. Do get in touch below the line, tweet @pollycurtis or email me at polly.curtis@guardian.co.uk.

Analysis

I've looked at the housing minister's initial claim that there are more than 1,000 private rental properties currently available in Newham and within a five mile radius. I've repeated his search without a price limit and without a bedroom requirement and there are indeed thousands available.

I called the agents and asked whether this was available to housing benefit tenants and was told "definitely not". I called a random selection and of the four or five estate agents that answered the phone (it was before 9am) none said that the property within the band could be paid with through housing benefits.

Shapps appears to be right that there are more than a thousand smaller properties available, but there are only 339 larger four bedrooms available with a five mile radius and the tenants of neighbouring councils' tenants will be chasing those as well. But it's misleading to assume that all those properties are available: many landlords refuse to take tenants on housing benefits as the random selection I contacted showed. This was a point made by Sir Robin Newham, the mayor of the council this morning.

Many places will not take people on housing benefit. You can find as many homes as you like doesn't mean people can live there.

It's also worth noting that five miles is a long way for people – especially those with children at schools – to move.

I'm going to look at the stats more and am really keen to hear from any people directly affected by this. Shapps claimed that rents are rising at pace below inflation. I'm going to fact-check that as well.

9.40am: It's well worth looking at this post from the Guardian's datablog which summarises the impact the changes would have from the department of Work and Pension's own impact assessment. It suggests that 11,390 households will lose more than £150; 8,040 will lose £100-150 a week; 17,420 will lose £50-£100 a week; and 30,150 will lose up to £50 a week.

More than a thousand households are affected in each of the following boroughs: Barnet, Birmingham, Brent,Camden, City of Westminster, Croydon, Ealing, Enfield, Hackney, Hammersmith & Fulham, Haringey, Harrow, Islington, Kensington & Chelsea, Newham, Redbridge, Tower Hamlets and Wandsworth. This means by the government's own admission some families will be priced out and forced to move to cheaper areas.

The housing charity Shelter has been in touch after reading my tweets disputing the housing minister's claim that rents are falling, I'll update with that information shortly.

9.59am: Shapps's claim that rents are going down repeats one made by the prime minister earlier this year. Inside Housing report him telling PMQs:

What we have seen so far, as housing benefit has been reformed and reduced, is that rent levels have come down, so we have stopped ripping off the taxpayer.

Housing Minister Grant Shapps stated that the fall was in 'real terms' and was reflected in the latest English Housing Survey. In that report, using data collected from 2,470 private renting households between April 2010 – March 2011 (therefore, potentially as long as 2 years ago), the median private rent was found to be £137 a week, compared to the previous year's £133. That represents an annual increase of 3%, which is lower than the 4.5% RPI inflation to April 2011. Strictly speaking, this does show rents falling in 'real terms', but more than a year ago.

However, Shelter's calculations, based on official data from the Valuation Office Agency for more than 500,000 homes including 60,000 in London, shows rents rising above the rate of inflation. It concluded:

The research found that the rate of inflation on private rents in London was 7% in 2011 - almost double the rate of inflation on the average London wage, indicating that family budgets are set to be squeezed even further as rent rises consistently outstrip inflation.

These are the main results:

Shelter: rental increases 2011 Public Domain

10.03am: Need to correct one point in my Rightmove research. @nigenet tweets:

@pollycurtis That 4 bed for £81/week http://t.co/hSNPoFTR is actually 1 room in a shared house. Still not a bad price though

Apologies for that, the property was mis-listed.

10.45am:

Several people on Twitter and below the line have pointed out that the caps the minister mentions – and those cited above – are in fact national caps. In Newham, the cap for a four bedroom property is £300. There's a searchable database here which tells you the cap in every authority. Below the line @Nessy76 very helpfully writes:

You're looking at the capped rate, rather than the LHA rate for Newham, which is much lower.

Back on Rightmove.com and I found 68 properties within a five mile radius of Newham below a £300/week (£1300/month) cap – fewer than the minister's claims. If you set the radius for the search at one mile from Newham you get only 38 properties - and we still don't know how many of those are available to tenants paying by housing association.

Newham is currently putting together a statement to respond on this point.

@Nessy76 also makes an important point about how the local caps are calculated on the lowest 30% of existing rents - and how that figure is calculated. She writes:

The problem, as I understand it, is that LHA rates are based on the lowest 30% of existing rents. Some of these will obviously be historical, and it includes Housing Association rents. The chances of finding property available for these kind of figures are vanishingly small anywhere in the country.

I've also just been forwarded a press release from the house share website SpareRoom.co.uk which found in a poll that 59% in a poll of 1,000 landlords said they wouldn't take housing association tenants.

11.00am:

This email has come from a reader in Newham who has asked to remain anonymous:

I was unsure about whether I should email you or not regarding this but the story about Newham Council making the headlines is the exact situation my family are facing. It is a long story but will help to fully explain things and put it into context.

My father worked as a licensee of various pubs for nearly 30 years paying tax. He was made redundant in 2007 and received a modest payout of £50,000 over half of which went to pay off debts caused by the costs of divorcing my mother who left when I was 10. The payout was also taxed. As a licensee, accommodation is provided so we had to move out once my father had been made redundant. Should also mention that my father had already been experiencing long term health issues which were caused by long hours working at the pub.

We found private housing in Custom House, Newham, some of which was subsided by housing benefit, the rest we paid ourselves. In March 2009, a bailiff came round to the house as it turns out the landlord had not been paying the mortgage. We had to leave and were rehoused by the council and the Notting Hill Housing association who put us into a 2 bedroom flat in Manor Park, Newham. The flat is owned privately but is let out through the housing association.

However, last year after the housing benefit cuts were announced the landlord who owned the flat did not accept the cut and said he wanted the flat back. We were given some extra as my father was in and out of hospital at the point. We heard nothing until a week before Christmas when we received a letter saying we needed to vacate the property by 23rd December- 2 days before Christmas. My father had to go to court and appeal and we were granted extra time.

We are still waiting to be rehoused- my father has tried ringing local estate agents to find private housing but they all refused to take people with housing benefits. Although Newham council are trying to help we are not considered a priority as my father's youngest child is 17 so our situation is not considered as urgent as others. I believe sometime in the next couple of months we are due to be evicted from our current flat with no idea of where we will end up.

As you can see from our story, we are not lazy scroungers or 'immigrants', my father worked for many years paying tax, yet now that he needs help from the state which he has helped provide for in the past, they are unable to reciprocate. We are effectively homeless and helpless to try and get out of this situation. I am very sad to read and see that Newham has made the headlines for the wrong reasons but I am hoping this will help highlight the very serious issues which have been caused by cut to housing benefit and rising rents in the area.

11.05am:

Below is a press release from the Labour councillors in Westminster, claiming that there are similar proposals to move their tenants to Derby and Nottingham.

WESTMINSTER COUNCIL LOOKS TO MOVE HOUSING BENEFIT CLAIMANTS TO DERBY AND NOTTINGHAM

Westminster Conservatives are looking to move homeless Housing Benefit claimants 130 miles away to Derby and Nottingham, according to information contained in a proposal to the Council from the Smart Housing Group.

According to the Smart Housing group proposal to Westminster Council, the company has offered to rehouse "150 people within the next 12 months…..with an option to increase this number to perhaps closer to 500 properties".

Councillor Paul Dimoldenberg, Leader of the Labour Group, said;

"Will Grant Shapps now condemn Westminster Council for investigating ways of moving Housing Benefit claimants to Derby and Nottingham? Or does his fake outrage only stretch to Labour Councils which are affected by the Government's damaging Housing Benefit caps?"

"There is absolutely no doubt that thousands of families from across London will find the only option they have of a home is to move hundreds of miles from London to a town or city with which they have no connection and where they have little prospect of a job. The information from Smart Housing Group shows the extent of the planning and research that is going in to the huge population movements that are the direct result of Government policy."

My colleagues are now doing a ring-round of other authorities to find out their plans - if you hear of any do get in touch or you can email me confidentially at polly.curtis@guardian.co.uk.

11.40am:

I've been recommended research by Alex Fenton of the London School of Economics who researches housing policy and poverty. This research he did last year on the reforms with the conclusion that most inner London boroughs would become "almost entirely unaffordable" by 2016:

We find that the changes to be introduced in 2011 will immediately reduce the proportion of London neighbourhoods affordable to LHA claimants from 75% to 51%. This falls further to 36% by 2016 as a result of the measures' longer-term effects. Our estimates of current neighbourhood affordability are strongly correlated with current observed concentrations of LHA claimants, giving credence to the predictive value of the approach. The estimates for 2016 are highly sensitive to the future relationship between CPI inflation and nominal rent inflation, emphasising that this is a key uncertainty about the long-term effects of the proposed reforms.

Most inner London boroughs are likely to become almost entirely unaffordable to low-income tenants on LHA by 2016. The large clusters of neighbourhoods in outer East, South and West London which our model finds to remain affordable in 2016 are likely to house increasing numbers of low-income tenants as a result of the reforms. The areas which remain affordable are characterised by high rates of multiple deprivation and unemployment among the existing population. We conclude that the reforms will intensify the spatial concentration of disadvantage in the city, and increase the segregation of poor and better-off households within London.

I know that many of you below the line feel that the term "social cleansing" is very emotive and perhaps over the top. But with such academic evidence suggesting that segregation between rich and poor in the capital will increase, is it really?

12.14pm: The Child Poverty Action Group has been in touch to remind us of this Observer story about Croydon looking to rent homes for its residents in Hull.

12.28pm: My colleague Peter Walker, who is working on a ring-round of councils, has found that one councils was having to relocate people before the changes even started:

I've started a ring-round of the remainder of the 32 London boroughs to ask whether any plan similar action to Newham. Of the 10 I've called so far, three gave an immediate "no" - Southwark, Lambeth and Wandsworth - while six are checking – Camden, Islington, Tower Hamlets, Lewisham, Greenwich and Haringey.

The only positive response came from Waltham Forest, in the north-east of the capital. A spokesman there said a small number of families had been given accommodation in Luton just over a year ago, and that the council also made efforts to put other people in homes in Kent, but this fell through. With a housing list of more than 20,000, the borough was "crammed to capacity", he said, adding: "We just haven't got the properties in the borough to meet the need."

The effects of the housing benefit cap were only just being felt and were expected to make matters worse, he added.

The government has also instituted a policy called Affordable Rent, which gives housing associations public grants to develop new homes in return for a flexibility to charge up to 80% of market rent for these properties to stabilise their incomes. In London, 80% of market rent is well above the housing benefit cap for most families - leaving housing associations facing the difficult decision of either renting these properties to households not in the most housing need, or deciding to rent at a lower value and lose a potential revenue stream which could help support other needy households.

1.13pm:I've been taking a closer look at whether rents have fallen as a result of the new cap. The idea is that landlords have been milking the benefits system by increasingly inflating rents because the benefits system has paid-up to the detriment of everyone – taxpayers (including many housing benefit recipients) and other renters. By capping it they will be forced to reduce their rents.

Shapps and the prime minister have argued that rents have been rising at a slower pace than inflation as a result of this citing a survey by LSL property services of 18,000 landlords. The latest release from March shows that there was indeed a small 0.3% dip in prices compared with the previous month, the second month running. But it also shows that over the past year, London has bucked the trend of most other areas with a 4.9% increase – inflation is currently running at 3.5%.

LSL property survey Public Domain

However, the real effect of these changes won't be felt until the end of the year. There is currently no convincing evidence to prove whether rents are decreasing as a result of the housing benefit cap or not, but it is too early to say.

The government's logic relies on there not being a housing shortage though - and housing benefit claimants being a big enough proportion of the renters to make a difference. I'm looking for stats on % of renters who claim housing benefit in each area, if anyone can help.

1.43pm: This is interesting data from 2007 showing the 20 councils with the highest proportion of housing benefit recipients as a proportion of private renters. (Hat tip to @bengoldacre who found it via this link.) These proportions do strike me as very high, and if many of these people are affected by the caps, you can see how the scale might force the price of rent down.

Alex Fenton, the LSE academic quoted above, has got in touch with the following:

As commenters have noted, it's partly supply & demand. Although the London HB bill is big, the total spend on all private rents (demand) is huge compared to other regions. So HB is as a proportion of total demand, smaller than anywhere else in GB - so one would expect the effect on prices of reducing LHA to be smaller. I did some analysis of this for a presentation last year (PDF).

General measures of housing stress (e.g. households/dwelling ratio) are high in London - so there are more people not on HB who may take up the slack.

The DWP evaluation (c2008) of the new HB system for private renting found that landlords set prices both downwards AND upwards to the published rates - so it doesn't follow that if you cut the HB rates, a dwelling's rental price will necessarily fall: it may stay stable and still represent it's 'true' open-market value.

2.03pm: Below the line @theindyisbetter asks why the Guardian is picking on Stoke when Newham also wrote to other councils. Just to reassure you there's no anti-Stoke agenda here but the story came originally from Labour and the Labour MP for the area Tristram Hunt, so we had the details of the proposal in that letter. Our reporters have been trying to establish where else this is happening. So far we've "twinned" Westminster to Derby and Nottingham; and Croydon to Hull.

This link comes to me via Twitter with the news that Newham also approached Macclesfield. In it Tim Pinder, chief executive of Peaks & Plains Housing Trust, describes Newham's approach as a "begging letter" and writes:

With feelings of disgust, I promptly deposited the letter in our recycle bin.

Recession, or no recession, that Britain in the 21st century should have come to this, a nation unable to offer a decent, civilised, caring response to some of its most vulnerable citizens, left me feeling angry. The idea had all the hallmarks of one of those responses to the tired old clichéd injunctions to "think outside the box", presumably not by front line staff or indeed anyone dealing directly with vulnerable housing applicants.

2.37pm: I was wondering how much areas outside of London might be affected and Alex Fenton mentioned that he had found a similar pattern to London, albeit on a much smaller scale, in play in Bristol. He recommended I speak with Stuart Hodginson at Leeds University who has worked with the council there to model the impact of the changes. He said they identified thousands of families at risk.

We were given anonymous claimants data from the local authority and ran the benefit changes on those private sector tenants. Around 16,000 claimants in all. It's not a scientific thing - we don't know exactly what will happen, people's behaviours may change. The government has done a number of impact assessments but they are all incomplete. They don't look at all the changes and their cumulative effect on individuals so they massively underestimated the potential income. We tried to run all the changes for the private tenants in our model.

March 2010 govenrment estimated for Leeds that around 15,600 households would be affected and the average loss would be £7 a week for Leeds, £12 for the country and £20-22 for London. When we took all the changes together we found an average loss of £16 for Leeds. That's more than double. That's a huge amount of money to lose on average and averages have huge extremes at both ends. Some people will have lost hundreds of pounds each week.

In Leeds more 775 households would lose more than £50 a week. That's massive. If people are paying £1,000 a month in rent and losing £200 that's a fifth of their rent which they don't have. We know that people are having to move, but we don't know how many yet. We thought that if you were losing more than £20 you were under threat to move and there are thousands in that category.

Of 18,400 claimants we found that about 4,670 lost less than £10; about 11,330 lost between £10-20 a week; then in danger there were 935 losing between £20-30 a week; 234 losing between £30-40 a week; 495 losing between £40 and £50 a week. The key message is that London is the extreme and probably some of the big cities like Manchester, Liverpool and Bristol where there is a polarised housing market already, you are going to see the same situation.

2.48pm:

Summary

Grant Shapps dismissed Newham's argument that they are being forced to look outside London to rehouse people priced out of the rental market by the new £400 cap on housing benefit. But that claim does not stand up to scrutiny. The local cap in Newham is actually £300 a week for a four bedroom property, and many landlords – 59% according to one survey - refuse to take tenants on housing benefits. Five miles is also a lot to ask families – particularly those with children at schools – to travel everyday.

One reader who wrote in describes the reality of this:

We are still waiting to be rehoused- my father has tried ringing local estate agents to find private housing but they all refused to take people with housing benefits. Although Newham council are trying to help we are not considered a priority as my father's youngest child is 17 so our situation is not considered as urgent as others. I believe sometime in the next couple of months we are due to be evicted from our current flat with no idea of where we will end up.

It's too early to say whether the government's claim that the cap will force down rents is right or not. Ministers say that rent is rising at a slower rate than inflation but that claim only stands up using a smaller survey for recent months; larger official data shows that rents in London last year outpaced inflation. However, it's too early to say whether the housing benefit cap will have a profound impact on price, not enough people have felt the full effect as yet.

The government's own impact assessment and academic research makes clear that people will be forced to move because of the changes and central parts of London will to a certain extent become the preserve of the rich with more lower income people congregating in cheaper areas of the capital. "Social cleansing" is a strong term that some readers have objected to. But there is some evidence of a trend consistent with it. As the LSE academics put it:

We conclude that the reforms will intensify the spatial concentration of disadvantage in the city, and increase the segregation of poor and better-off households within London.